Mortgage repayments ‘still rising’: RBA

In its latest Statement on Monetary Policy (SoMP), the Reserve Bank of Australia (RBA) has revealed a “significant rise” in household debt payments since the tightening in monetary policy began in 2022.

Despite the RBA leaving interest rates unchanged at 4.35 per cent during the February monetary policy meeting, the central bank has flagged that interest repayments on household debt will continue to rise as fixed-rate mortgages continue to roll off onto higher rates.

“A large share of the increase in the cash rate since May 2022 has been passed on to borrowers. The most recent cash rate increase in November 2023 has been passed through to advertised rates, and most remaining low fixed-rate loans will roll off onto higher rates over 2024,” it stated.

“The share of household incomes used to meet mortgage payments is high by recent historical standards and still rising. Housing credit growth has stabilised at a lower level than in 2022, although new lending has risen over the past year.”

According to the RBA, total interest repayments are projected to increase to around 8 per cent of household disposable income by the end of 2024 to sit slightly below the 2010–11 peak when the cash rate was 4.75 per cent.

Additionally, the central bank stated that total scheduled payments (interest plus scheduled principal) for mortgages reached approximately 10 per cent of household disposable income in the December quarter, a record high according to the RBA.

“Tighter monetary policy has contributed to a noticeable slowing in the growth of demand over the past year,” the RBA stated.

“Household spending growth has been weak, and in per capita terms spending has declined. This has been only partly offset by strong growth in business investment, public sector spending and spending by international students and tourists.”

Along with higher repayments, high inflation as well as higher interest rates and tax payments have weighed on household disposable incomes, however, the central bank expects inflation to continue to moderate and return to the target range of 2–3 per cent in 2025 and to reach the midpoint in 2026.

“In aggregate, households have responded to these pressures by curbing their spending, particularly on discretionary items,” the RBA said.

“Households are saving less and, in some cases, drawing down on their accumulated savings buffers. Timely indicators, including from the RBA’s liaison program, suggest that growth in consumer spending has remained subdued this year so far.”

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